Geneva: Global foreign direct investment (FDI) flows will fall 10% this year from their 2007 record as major companies scale back spending plans, the UN Conference on Trade and Development (Unctad) said.
FDI flows rose 30% to $1.83 trillion (Rs84 trillion now) in 2007, despite the onset of the global financial crisis halfway through the year, Unctad said in a report issued on Wednesday.
But they are falling this year, largely because of a sharp drop in merger and acquisition (M&A) activity—the main driver of FDI—it said in its yearly review of investment trends.
“FDI flows to developing countries as a group are likely to remain quite stable. The main drop will be found in the area of mergers and acquisitions,” Unctad secretary general Supachai Panitchpakdi told a news conference.
Cross-border M&A, mainly between developed countries, was 29% lower in the first half of this year than in the second half of 2007, Unctad said. In 2007 as a whole it totalled $1.64 trillion.
A survey of 226 of the biggest multinationals conducted this year between April and June—before the full force of the financial crisis set in—shows 21% of companies expect a large increase in FDI over the next three years, Unctad said.
That compares with 32% of companies in a similar survey a year ago.
The latest survey, which covers 2007 and offers hints into trends in 2008, showed that 68% of companies still intend to increase their investments over the next three years, but the proportion planning a moderate increase has risen to 48% from 38% a year ago.
Companies are sensitive to the risk of further deterioration of the global economic situation, Unctad said.
Half the respondents said the possibility of a global downturn is a significant additional threat to their investment plans, and 39% said financial instability has already had a significant negative impact on their intended spending over the next three years.
The Unctad survey shows that companies consider China, India, the US, Russia and Brazil as the most attractive destinations for investment.
Last year’s strong investment inflows were seen in all regions, and governments continue to make their investment climates more attractive to multinationals and FDI, despite increasing concerns about rising protectionism, Unctad said.
As a result, the stock of FDI worldwide reached $15 trillion, representing the activities of some 79,000 multinationals owning about 790,000 foreign affiliates, it said.
The activities of these affiliates, employing 82 million people, accounted for 11% of world gross domestic product in 2007, and their sales rose 21% to $31 trillion.
Developed countries continued to attract the biggest share of FDI, with $1.25 trillion in 2007, led by the US—where the weak dollar stimulated inflows—Britain, France, Canada and the Netherlands.
FDI inflows into developing countries jumped 21% to $500 billion, with Africa attracting a record $53 billion.